What's new in the market to fix your hip

Stryker tries to market hip rebuilding system dominated by rival; FDA panel vote this week.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Despite his other problems, hip rebuilding seems to have worked for Floyd Landis, the winner of last year's Tour de France. Now a Michigan-based company wants to see if it works for you.

Stryker Corp., based in Kalamazoo, Mich., wants to break into the U.S. market for hip resurfacing - a partial rebuilding of the hip - and break up Smith & Nephew's monopoly in that business in the process. But that could depend on whether a panel of experts gives a go-ahead to a new product from the company on Thursday.

Corin's hip resurfacing system: Cormet

Members of an advisory panel for the Food and Drug Administration will vote Thursday on whether to recommend the approval of the Cormet hip system made by the British company Corin Group. While the panel's vote is non-binding, the agency follows the advice of its expert panels most of the time.

Stryker (Charts) would then market Cormet in the United States if the product wins approval by the FDA later this year. The device would compete with the London-based Smith & Nephew (Charts), currently the only company providing a hip rebuilding system in the U.S.

Hip resurfacing is a relatively new orthopedic technology that rebuilds part of a patient's hip with an artificial device without completely replacing it. The device resembles a metal cap that is placed over the joint of the femur where it connects with the hip. The technology is generally used by young patients (in their 20s to early 50s) and it delays the need for total hip replacement.

"[Hip resurfacing] is difficult to implant and it's not a minimally invasive procedure by any means," said Raj Denhoy, analyst for Piper Jaffray. "But the advantage is that it conserves the patient's bone stock."

Hip resurfacing grabbed headlines last year when Landis, a Pennsylvania cyclist who rode to a stunning victory in last year's Tour, used Smith & Nephew's procedure to fix his ailing hip after winning the race. Meanwhile, right after the race, he was accused of using performance-enhancing steroids, an allegation that he denies, and that case is pending.

The hip replacement market totals $2 billion in the U.S. and $1.4 billion in Europe, according to the research firm Datamonitor. Analysts say that hip resurfacing could potentially take 10 to 15 percent of the implant market. But analysts say this is unlikely to provide a meaningful boost in sales for a large and diversified company like Stryker, with total revenues of $5.4 billion in 2006 and a market capitalization of more than $25 billion.

Greg Simpson, analyst for Stifel, Nicolaus & Company, said the hip resurfacing market in the U.S. currently totals $20 million - all from Smith & Nephew. Simpson said the market has the potential of expanding fifteen-fold, but that's still only $300 million.

"If it gets turned down for some reason, is it going to hurt Stryker's stock? I doubt it," said Simpson.

Two other U.S. companies, Biomet Inc. (up $0.12 to $42.49, Charts) and Wright Medical Group (up $0.33 to $21.82, Charts), are also developing products for hip resurfacing, but they're not as advanced in the regulatory process as Corin.

Denhoy of Piper Jaffray said that one of the toughest challenges faced by Smith & Nephew is getting surgeons properly trained to implant the devices. Denjoy said that only 400 surgeons have been trained in the U.S. so far.

"The worse thing that's going to happen is if there's going to be failures with this device, because that would really muddy the market," said Denhoy. "Obviously you don't want failures and it's a technically demanding implant."

The analysts interviewed do not own shares of company stocks mentioned here but Stifel, Nicolaus makes a market in Biomet and intends to seek payment for investment banking services from Stryker in the next three months.

Piper Jaffray has done investment banking for Smith & Nephew in the last 12 months.

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